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The paints sector has been an underperformer with most listed majors shedding 17-25 per cent since their highs in August. Barring Akzo Nobel, which has generated positive returns in this period, paint companies have lagged the benchmarks and their peer indices that have delivered flattish returns over this period.
Despite the weak returns, brokerages believe that there are multiple near- to- medium-term worries for the sector, which could open the way for further downgrades and disappointment on the return front. These include weak December quarter earnings, muted volumes, competitive pressures as new players enter the segment, and a lack of valuation comfort.
The near-term risk for the major players remains in sales. Elara Securities expects muted volumes across segments with low, single-digit growth in decorative coatings due to early Diwali and prolonged monsoons. Its checks indicate muted demand post-Diwali and the slowdown in business. Analysts led by Amit Purohit of the brokerage, believe that industrial paints too are likely to be muted due to a dip in automobile production (2 per cent dip in Maruti Suzuki’s passenger vehicle production), led by electronics components shortage.
